What guidance has been updated?
Earlier this year, a revised version of the guidance was published, taking into account the changes brought about by the National Security and Investment (NSI) Act 2021, which came into force on that day.
What is the NSI Act?
The NSI Act established a new regulatory regime for the UK government's investigation and intervention in mergers, acquisitions, and investments for the purposes of protecting UK national security. Changes include the introduction of a mandatory notification system for acquisitions in sensitive areas of the UK economy, and the power for the Secretary of State (SoS) for BEIS to call in for review transactions that pose a risk to national security. To read more about the NSI Act, please refer to our comprehensive guide.
When will these updates apply?
The previous statutory framework (and therefore the previous version of the guidance) will apply in all ongoing cases and any future cases where a trigger event occurs prior to 4 January 2022; the revised guidance will apply in relation to all other mergers from 4 January onwards.
What provisions are set out by the updated guidance?
A notable provision of the guidance is the statement that the national security regime under the NSI Act is separate from the merger control regime under the Enterprise Act 2002, and therefore a merger may potentially qualify for review under both regimes. In such circumstances, the CMA and the Investment Security Unit (ISU) expect to coordinate as appropriate to manage the interactions between the two regimes. Additionally, the CMA may share confidential information with the ISU where a merger is being investigated in parallel by the CMA on competition grounds and for national security reasons under the NSI Act.
On the other hand, the SoS no longer has the power under the Enterprise Act to intervene in cases where an issue of national security arises. Whilst previously, the scope of public interest considerations that the Secretary of State could take into account when deciding to intervene in merger situations previously did include national security, this was removed as a consideration for the purposes of the Enterprise Act by the NSI Act. Instead, national security issues must be addressed in accordance with the NSI Act provisions.
However, the SoS can issue a direction to the CMA to do or not do anything under Part 3 of the Enterprise Act in some circumstances. This is where a final order is in force or a final notification that no further action is to be taken has been given under the NSI Act, and the SoS reasonably considers that the direction is necessary and proportionate for the purpose of preventing, remedying or mitigating a risk to national security.
Another update to the guidance relates to "relevant enterprises". A merger must meet three criteria in order to constitute a relevant merger situation for the purposes of the Enterprise Act, including that turnover associated with the enterprise which is being acquired exceeds £70 million, or the enterprises which cease to be distinct supply or acquire goods or services of any description and, after the merger, together supply or acquire at least 25% of all those particular goods or services of that kind supplied in the UK or in a substantial part of it. Special jurisdictional thresholds previously applied where the enterprise being taken over constituted a ‘relevant enterprise’, i.e. where it was active in certain specified areas, including artificial intelligence and the development or production of items for military use. The provisions of the Enterprise Act relating to ‘relevant enterprises’ were removed by the NSI Act, and therefore these thresholds are no longer applicable.
What is the practical impact of these updates?
Parties to an acquisition should take care to consider whether it falls within the scope of both the merger control and national security regimes, as this confirmation that the regimes will be operating in parallel might have a significant impact on their deal. In particular, the fact that mergers may potentially qualify for review under both regimes means that notifications may have to be submitted to both the CMA and ISU. This in turn means parties should be aware of what needs to be filed for each of the notification processes, consider the impact dual investigations may have on timings and deal structures, and relevant conditions precedent which may need to be incorporated into deal documents. Merger parties are encouraged in the guidance to discuss the process and timing of the review of a merger falling within the scope of both regimes with the CMA at an early stage.
How can we help?
We are particularly known for our commitment to applying regulatory rules practically and efficiently to support our clients' commercial strategy. Our regulatory advice is grounded in deep understanding, sector experience and judgment, but communicated in realistic, understandable language. Our approach is to give clear, partner-led guidance, delivered in a characteristically approachable way.
We have already been active in securing multiple NSI Act clearances, and will continue to do this in parallel to considering notifications and clearances with the CMA. We can advise parties (based in or outside the UK) on the significance of these updates to CMA guidance, and on the possible impact of the NSI Act regime on proposed divestments or acquisitions. We can also assist parties in contacting the ISU to discuss possible acquisitions and how the new regime could impact their transaction and timeline.
